Valérie Macon | AFP | Getty Images
According to an annual government report released Tuesday, the Social Security trust fund, which most Americans rely on for their retirement, will run out of money 12 years from now, a year ahead of schedule.
Circumstances exacerbated by the COVID pandemic threaten to cut retirement payments and increase healthcare costs for aging Americans sooner than expected.
The Treasury Department oversees two social security funds: Old Age and Survivors’ Insurance and the Disability Insurance Trust Fund. These programs are designed to provide a source of income for former workers who have retired at the end of their careers or who cannot work due to a disability.
Officials said the Old Age and Survivors Trust Fund was now able to pay expected benefits until 2033, a year earlier than last year. The Disability Insurance Fund is expected to be adequately funded by 2057, eight years earlier than the report released in 2020.
Although the two funds are separated under the law, the Treasury Department said the hypothetical combined fund would be able to pay out scheduled benefits in a timely manner through 2034.
Senior administration officials said at a press briefing Tuesday afternoon that an increase in the number of deaths among Americans of retirement age in 2020 helped keep the cost of programs lower than expected and the possible long-term impact of the coronavirus is less clear. and may have little long-term effect.
The Treasury Department has said it estimates worker productivity levels and therefore GDPs at a persistently low level of 1%, even though they are expected to resume their pre-pandemic trajectory.
Yet the financial outlook for Social Security and Medicare, the country’s two main safety net programs, has deteriorated over the past year as Covid accelerated retirement and caused the economy to contract. size of the US workforce.
Medicare’s hospital insurance fund is set to expire in 2026, the same date it predicted a year ago. At this point, doctors, hospitals, and nursing homes will not receive their full Medicare compensation, and patients will likely be responsible for any reduction in coverage.
In their entirety, the funds serve as pillars supporting the retirement plans of millions of Americans, present and future. Americans have assumed for decades that the programs they spent years contributing to payroll taxes would provide them in return.
The programs have become so popular that they are often referred to as the “third rail” of American politics, simply dangerous enough to be difficult to touch. Treasury Secretary Janet Yellen set that tone in a statement released Tuesday.
“Having strong social security and health insurance programs is essential to ensuring a secure retirement for all Americans, especially our most vulnerable populations,” he said in a press release. “The Biden-Harris administration is committed to protecting these programs and ensuring they continue to provide economic security and health care to older Americans.”
But the future of that model now sits in the midst of a slow crisis: Over the past two years, the program has started cutting its assets to retirees to pay all the promised benefits.
In other words, the cost of Social Security in the form of monthly payments to retirees now exceeds the income it generates for American workers. Scheduled to operate in the red soon, the program’s reserve fund will run out around 2033.
If Congress doesn’t act then, Social Security legislation would cut benefit checks for retirees by about 20% overall. For a demographic that has provided for these payments and typically has few other sources of income, a 20% cut could prove catastrophic and threaten to push many Americans into poverty.
Social Security has long known that it faces a simple mathematical problem: With thousands of baby boomers retiring every day, there are not enough young people entering the workforce to offset the costs.
To make matters worse, the life expectancy of Americans is increasing and birth rates are falling.
According to Social Security projections, the number of Americans 65 or older will rise to more than 79 million by 2035, up from 54 per million according to current census data. Meanwhile, the number of births in the United States fell 4% last year from 2019, more than double the average annual rate of decline of 2% since 2014, the CDC said in May.
The CDC said the birth rate in the United States is now so low that the country is “below replacement levels,” meaning more people are dying every day.